The opinion of the court was delivered by: Allen G. Schwartz, United States District Judge:
Plaintiffs, related companies in the magazine and book wholesale
business, allege that defendants, a wholesaler and various magazine and
book distributors, have violated antitrust laws, breached certain
contracts, and committed certain torts. The wholesaler, defendant Chas.
Levy Circulating Co. ("Levy"), and the distributor defendants
(collectively the "Distributors") each move, pursuant to Rule 12(b)(6),
to dismiss the claims against them respectively in the Amended
Complaint. For the reasons set forth below, defendants' motions are
Plaintiff United Magazine Company ("Unimag") is an Ohio corporation
with its principal place of business in Ohio. (Am. Compl. ¶ 6.)
Unimag directly or indirectly owns of the stock of each of the other
plaintiffs. (Id.) Plaintiff The Stoll Companies ("Stoll") is an Ohio
corporation with its principal place of business in Ohio. (Id. ¶ 9.)
Plaintiff Michiana News Service, Inc. ("Michiana") is a Michigan
corporation with its principal place of business in Ohio. (Id. ¶ 11.)
Plaintiff Geo. R. Klein News Co. ("Klein") is an Ohio corporation with
its principal place of business in Ohio. (Id. ¶ 13.) Plaintiff
Central News Company ("Central") is an Ohio corporation with its
principal place of business in Ohio. (Id. ¶ 15.) Plaintiff The Scherer
Companies ("Scherer") is a Delaware corporation with its principal place
of business in Ohio. (Id. ¶ 19.)
Defendant Murdoch Magazines Distribution, Inc. and defendant TV Guide
Distribution, Inc. (together "Murdoch") are Delaware corporations with
their principal places of business in New York. (Id. ¶¶ 24-25.)
Defendant Curtis Circulation Company ("Curtis") is a Delaware corporation
with its principal place of business in New Jersey. (Id. ¶ 26.)
Defendant Hearst Distribution, Inc. and defendant Comag Marketing Group,
LLC (together "Hearst") are Delaware corporations with their principal
places of business in New York. (Id. ¶¶ 27-28.) Defendant Kable News
Company, Inc. ("Kable") is an Illinois corporation with its principal
place of business in New York. (Id. ¶ 29.) Defendant Time Distribution
Services, Inc. ("Time") is a Delaware corporation with its principal
place of business in New York. (Id. ¶ 30.) Defendant Warner Publisher
Services, Inc. ("Warner") is a New York corporation with its principal
place of business in New York. (Id. ¶ 31.) (Time and Warner will
hereinafter together be referred to as "Time Warner."*fn1) Defendant
Levy is an Illinois partnership with its principal place of business in
Illinois. (Id. ¶ 34.)
The facts set forth below are taken from the Amended Complaint. All of
the parties herein are involved in the magazine and book distribution
industry, the structure of which forms the factual background of this
action. Each magazine or book (together "publication") is published by a
specific publisher. (E.g. Time-Warner, Inc. publishes Time.) (Am. Compl.
¶ 38.I.) Each publisher then sells specific publication titles to a
particular distributor. Commonly, publication titles are available from
only one distributor. (E.g. TV Guide is only available from Murdoch.)
(Am. Compl. ¶¶ 38.G, 46.) Distributors then resell the publications to
wholesalers at a discount off of the cover price. (Id. ¶ 52.)
Distributors determine the wholesalers to which titles will be sold, and
in what quantity. (Id. ¶ 46.) Wholesalers, in turn, resell the
publications to retailers at a smaller discount off the cover price than
the wholesalers receive from the distributors. (Id. ¶ 52.)
Wholesalers are responsible, at their own expense, for allocating the
publications among retailers, physically distributing the publications to
retail locations, and arranging the publications in display racks. (Id.
¶¶ 47-48.) Retailers
then sell the publications to consumers at the
cover price. (Id. ¶ 52.)
Any publications unsold at the end of their respective shelf lives are
removed from retail locations by the wholesalers, at the wholesalers'
expense. The wholesalers are then responsible for disposing of the unsold
publications and certifying such disposal to the distributors.
Certification may entail removing the cover of each unsold publication
and shipping the covers back to the particular distributor, or scanning
the UPC codes on the unsold publications and sending the distributor an
affidavit stating that the wholesaler disposed of the particular
publications properly. (Id. ¶¶ 48-49.) Unsold publications also
generate credits back along the chain of sale. That is, retailers receive
credits from wholesalers for each unsold publication; wholesalers receive
credits from distributors; and distributors receive credits from
publishers. (Id. ¶¶ 50, 52.) Under this system, distributors have a
financial incentive to distribute as many copies of the publications as
possible because they receive full credit for unsold publications that
they purchased and are not responsible for the costs of physical
distribution. (Id. ¶ 53.)
Historically, each wholesaler was granted one or more exclusive
geographic territories in which it alone sold publications to retailers.
Any retailer in a given area could purchase publications only from the
single wholesaler with rights to that area. (Id. ¶¶ 44, 56-60.) Under
this system, wholesalers could operate profitably because any losses
incurred supplying smaller, less-profitable retailers were compensated
for by profits made on larger, more-profitable retailers. Over the last
fifty years, the number of both distributors and wholesalers has
decreased, as distributors purchased other distributors and wholesalers
purchased other wholesalers. (Id. ¶ 45.) For example, during this
period Unimag acquired Stoll, Michiana, Klein, and Central. (Id. ¶¶ 9,
11, 13, 15.) Beginning in 1995, one or more of the Distributors began
permitting some wholesalers to sell magazines and books to certain large
retailers without regard for exclusive geographic territories. (Id.
¶ 62.) Under the new system, wholesalers were permitted to bid for the
right to sell to a given large retailer in multiple territories. (Id.
¶¶ 63-64.) This change was apparently driven by the large retailers,
who preferred to purchase all of their publications from one wholesaler,
rather than having to make purchases from a different wholesaler in each
geographic area. (Id. ¶ 63.)
From 1938 through late 1995, Stoll had exclusive territories in
northern Ohio, southern Michigan, and eastern Indiana. (Id. ¶ 103.)
From 1971 through late 1995, Michiana had exclusive territories in
southwestern Michigan, Indiana, and northwestern Ohio. (Id. ¶ 104.)
From 1958 through late 1995, Klein had exclusive territories in northern
and northeastern Ohio. (Id. ¶ 105.) From 1959 through late 1995,
Central had exclusive territories in northern Ohio, West Virginia, and
Pennsylvania. (Id. ¶ 106.) Service News Company d/b/a Yankee News
Company, had exclusive territories in Connecticut and New York from 1958
until its merger into Unimag in 1998. (Id. ¶¶ 21, 107.) From 1988
through late 1995, Unimag had exclusive territories in Connecticut, New
York, North Carolina, South Carolina, and Pennsylvania. (Id. ¶ 108.)
Scherer did not itself operate as a wholesaler of books and magazines.
Instead, Scherer provided management services and computer hardware,
software, and technical support to the other plaintiffs. (Am. Compl.
¶ 20.) As of late 1995, Levy had exclusive territories in Illinois,
Indiana, Michigan, Pennsylvania, and Wisconsin. (Id. ¶ 112.)
Sometime between 1995 and 1999, defendant Levy began selling to one or
more large retailers in one or more of the plaintiffs' previously
exclusive territories. (Id. ¶ 76.) The Distributors enabled Levy to
do this by providing Levy with extra copies of magazines and books, as
well as with various discounts. These discounts were not provided to
plaintiffs. (Id. ¶¶ 63, 67, 74.) As a result, plaintiffs were left with
only smaller, less-profitable retailers, and so had difficulty
maintaining sufficient revenues to continue to operate. (Id. ¶¶ 73,
93.) In late 1998, Levy negotiated to acquire the assets of plaintiffs.
(Id. ¶ 115.) These negotiations culminated in an executed asset
purchase agreement dated March 18, 1999 (the "Purchase Agreement").
Plaintiffs and Levy never closed on the asset purchase transaction,
however. Plaintiffs allege that they were "forced" to cease doing
business in September 1999. (Id. ¶ 93.) Plaintiffs filed this action
on May 3, 2000. Murdoch moved to dismiss the complaint on July 20, 2000.
In response, plaintiffs filed the Amended Complaint on August 31, 2000.
All defendants then filed the instant motions to dismiss the Amended
Complaint. The Court heard oral argument on the motions on May 1, 2001.
III. MOTION TO DISMISS STANDARD
A court may not dismiss a complaint pursuant to Rule 12 unless, even
when the complaint is liberally construed, it appears beyond doubt that
the plaintiff can prove no set of facts which would entitle it to
relief. Jaghory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d
Cir. 1997). On a motion to dismiss, a court must accept as true all of
the facts alleged in the complaint. Id. A court must also must draw all
reasonable inferences in the light most favorable to the plaintiff. Id.
In antitrust cases, as in other types of cases, all that is required is a
"short plain statement of a claim for relief which gives notice to the
opposing party." Global Disc. Travel Servs. v. Trans World Airlines,
960 F. Supp. 701 (S.D.N.Y. 1997). "This does not mean that `conclusory
allegations which merely recite the litany of antitrust . . . will
suffice.'" Id. (quoting John's Insulation, Inc. v. Siska Constr, Co.,
774 F. Supp. 156, 163 (S.D.N.Y. 1991)).
IV. PLAINTIFFS' ANTITRUST CLAIMS
Plaintiffs' Amended Complaint includes fifteen counts, some of which
contain more than one cause of action. In this section, the Court
addresses the three counts that implicate antitrust law, both federal and
state. The remaining counts will be addressed in the following section.
A. Robinson-Patman Act (Count I)
Plaintiffs allege three separate causes of action under the
Robinson-Patman Act, 15 U.S.C. § 13 et seq. First, that the
Distributors violated section 2(a) of the Robinson-Patman Act,
15 U.S.C. § 13(a), by selling goods to Levy at a lower price than
they charged plaintiffs. Second, that all of the defendants violated
section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c). by the
Distributors paying, and Levy receiving, discounts disguised as brokerage
fees or discounts that constituted commercial bribes. Third, that Levy
violated section 2(f) of the Robinson-Patman Act, 15 U.S.C. § 13(f),
by receiving discriminatorily lower prices for goods. The Court will
address each cause of action in turn.
Plaintiffs allege that the Distributors sold publications to Levy at a
lower price than the Distributors sold publications to plaintiffs,
thereby harming plaintiffs,
in violation of section 2(a). (Am. Compl.
¶¶ 66-84.) The Distributors argue that plaintiffs have failed to
adequately allege all of the elements of a section 2(a) claim. (Joint
Mem. of Law of the National Distributor Defs. in Supp. of Their Mot. to
Dismiss Pls.' Am. Compl. Pursuant to Fed.R.Civ.P. 12(b)(6)
("Distributors' Mem.") at 3-8.) The Court finds that plaintiffs have not
adequately alleged two elements of their section 2(a) claim. Section 2(a)
prohibits discriminatory pricing among competing buyers of the same
goods. 15 U.S.C. § 13(a). To state a claim for secondary-line price
discrimination under section 2(a),*fn2 a plaintiff must allege that: (i)
the seller made sales in interstate commerce; (ii) the seller
discriminated in price between two buyers; (iii) the product sold to both
purchasers was the same grade and quality; and (iv) the price
discrimination had an unlawful effect on competition. George Haug Co. v.
Rolls Royce Motor Cars, Inc., 148 F.3d 136, 141 (2d Cir. 1998). In order
to establish an unlawful effect on competition, a plaintiff must allege
that it was actually competing with the favored purchaser at the time of
the price discrimination. Id.; Best Brands Beverage, Inc. v. Falstaff
Brewing Corp., 842 F.2d 578, 584-85 (2d Cir. 1987). An allegation of
actual competition at the time of the price discrimination, and of a
price discrimination that was substantial and sustained over time, will
satisfy the fourth element of a section 2(a) claim. George Haug, 148 F.3d
The first two elements of the section 2(a) claim are adequately pled
here. The Distributors do not dispute that plaintiffs have alleged the
first element, the sale of goods or commodities in interstate commerce.
The Distributors argue that plaintiffs have not pled the second element,
price discrimination between favored and disfavored buyers, because the
plaintiffs have not alleged competition between plaintiffs and Levy at the
time when, and in the geographic markets where, any price discrimination
occurred. (Distributors' Mem. at 5-6.) This argument addresses not the
second element of a section 2(a) claim, but the fourth. All that is
required for the second element is an allegation of discrimination by the
seller between two buyers. George Haug, 148 F.3d at 136. Plaintiffs
allege that Levy purchased publications from the Distributors at a unit
price per publication lower than the unit price plaintiffs were forced to
pay the Distributors. (Am. Compl. ¶ 67.) This allegation is sufficient
to satisfy the second element.*fn3
The third element of plaintiffs' section 2(a) claim is a closer
question. The Distributors argue that plaintiffs have not
alleged the third element because they have not pled that Levy and the
plaintiffs purchased products of the same grade and quality.
(Distributors' Mem. at 6-7.) Plaintiffs allege that they paid a higher
price than did Levy "for the same Magazine or Book from the same seller."
(Am. Compl. ¶ 67.) As defendants point out, however, this allegation
is made problematic by plaintiffs' defined terms. "Magazines and Books"
is defined as "the lines of mass-market magazine titles, newspapers,
other periodicals and paperback book titles published by the Publishers
and distributed by the [Distributors] to Wholesalers or directly to Major
Retailers in the United States." (Am. Compl. ¶ 38.E.) of course, if
certain periodicals were sold directly to retailers, and not to
wholesalers, they may not form the basis of plaintiffs' Robinson-Patman
claims. Also, the "Publishers" are alleged to publish only magazines;
accordingly, "Magazines and Books" actually includes no books,
newspapers, or "other periodicals" other than magazines. (Am. Compl.
¶ 38.1.) Further, plaintiffs argue in their memorandum that, contrary
to what is alleged in the Amended Complaint, the products at issue are
"the 38 supertitle Magazines." (Pls.' Mem. in Opp. to the Nation
Distributor Defs.' Mot to Dismiss Pls.' Am. Compl. Pursuant to
Fed.R.Civ.P. 12(b)(6) ("Pls.' Distributor Mem.") at 8.) "Supertitle" is
an undefined term that apparently refers to the most popular magazines.
"Magazines and Books" by its definition, however, does not refer to
certain supertitles. For example, Shape is allegedly a "supertitle."
(Am. Compl. ¶ 38.G.4.) However, Shape is not within the category of
"Magazines and Books" because it is not published by one of the
"Publishers." (Am. Compl. ¶ 38.I.) Thus, Kable's sale of Shape is not
alleged to be a basis for the section 2(a) claim. Plaintiffs do not
clearly allege that Kable distributes magazines and books other than
Shape, or that Levy and any particular plaintiff was charged different
prices for whatever magazines Kable does distribute. Even under notice
pleading, plaintiffs' conclusory allegation, combined with their unclear
and inconsistent definitions of terms, does not afford Kable proper
notice of how it has allegedly violated the Robinson-Patman Act.
Similarly. plaintiffs' conclusory allegations and problematic definitions
fail to give adequate notice to the other Distributors. That is not to
say that plaintiffs must allege the exact price paid by each of them and
by Levy for each specific title, or otherwise plead all of their
evidence. However, absent clearer notice than they have provided in the
Amended Complaint, plaintiffs have failed to adequately allege the third
element of their section 2(a) claim.
Plaintiffs also do not adequately allege the fourth element of their
claim. As noted above, the Distributors argue that there is no sufficient
allegation of actual competition between plaintiffs and Levy at the time
when, and in the place where, any price discrimination occurred. The
Distributors also argue that, even if there was competition and price
discrimination, any such price discrimination was not sustained over a
long enough period of time to establish harm to competition.
(Distributors' Mem. at 5-6, 8.) Plaintiffs initially allege that.
"[s]tarting in 1995, some of the [Distributors] permitted some
Wholesalers to supply Magazines and Books to retail locations of Major
Retailers without regard to the exclusive geographic areas." (Am. Compl.
¶ 62.) This allegation is insufficient to meet the requirement that
there have been competition between any of the plaintiffs and Levy.
Plaintiffs later allege that during the period from May 1996 to May
2000, "plaintiffs have been in competition with Levy and other
Wholesalers... for sales of Magazines and Books to some
Major Retailer customers and prospective customers in the 11-state
territory serviced by plaintiffs. . . ." (Am. Compl. ¶ 76.) While an
improvement over the first allegation, this allegation is still
insufficient. First, it is not clear from this allegation if any
competition was with Levy or a non-party wholesaler. Second, as noted
above, plaintiffs may not treat six separate entities as if they were
one. Each of the five wholesaler plaintiffs had a distinct territory or
territories. See supra p. 5. It is unclear from the Amended Complaint as
to which plaintiffs faced competition from which of the wholesalers in
which territories for sales of the same commodities. Plaintiffs may not
state a claim by glossing over these factual requisites with a conclusory
allegation of competition. Moreover, there is no clear link between the
timing and location of any competition and the timing and location of the
alleged price discrimination. To state a claim, each plaintiff must
allege that there was price discrimination between it and Levy during the
time, and in the place, where that plaintiff and Levy competed for the
sale of the same goods. Because plaintiffs have not done this, they have
not adequately alleged a claim under section 2(a). Accordingly, the Court
dismisses this cause of action.
Plaintiffs allege that the defendants violated section 2(c) of the
Robinson-Patman Act by arranging for Levy to receive various payments and
discounts that amounted to sham brokerage fees and commercial bribes.
(Am. Compl. ¶¶ 66-84.) The defendants argue that plaintiffs have not
sufficiently alleged sham brokerage fees or commercial bribery.
(Distributors' Mem. at 4 n.3; Defendant Chas. Levy Circulating Co.'s
Mem. of Law in Supp. of its Mot. to Dismiss Pls.' Am. Compl. Pursuant to
Rule 12(b)(6) ("Levy's Mem.") at 7-9; Joint Reply Mem. of Law of the
National Distributor Defs. in Further Support of Their Mot. to Dismiss
Pls.' Am. Compl. Pursuant to Fed.R.Civ.P. 12(b)(6) at 3-4; Def. Chas.
Levy Circulating Co.'s Reply Mem. of Law in Supp. of its Mot. to Dismiss
Pls.' Am. Compl. Pursuant to Rule 12(b)(6) at 4-5.) The Court finds that
plaintiffs have not adequately alleged all of the elements of a claim
under section 2(c). Section 2(c) prohibits sham brokerage fees, that is,
price concessions disguised as payments to alleged brokers who do no
brokerage work but simply turn the payments over to buyers.
15 U.S.C. § 13(c); Federal Trade Comm'n v. Henry Broch & Co.,
363 U.S. 166, 169 (1960). Some courts have also construed section 2(c) to
prohibit commercial bribery, although this is not a settled question in
the Second Circuit. Compare, e.g., Philip Morris, Inc. v. Grinnell
Lithographic Co., 67 F. Supp.2d 126 (E.D.N.Y. 1999) (prohibits bribery)
with Intimate Bookshop, Inc. v. Barnes and Noble, Inc., 88 F. Supp.2d 133
(S.D.N Y 2000) (applies only to brokerage fees).
Plaintiffs' claim of a violation of section 2(c) apparently rests
entirely upon the allegations in one paragraph of the Amended Complaint,
Upon information and belief, the [Distributors]
offered and/or Levy and Hudson News solicited, induced
and knowingly received on its [sic] Magazine and Book
purchases from the [Distributors] and from the
Publishers the following secret Discounts, Rebates and
Deductions knowing that they were not being offered or
made available to plaintiffs and that such Discounts,
Rebates and Deductions were in violation of the
(r) upon information and belief. Murdoch and the other
[Distributors] arranged for additional discounts and
payments to or for the benefit of Levy:
(1) from Publishers of supertitles being distributed
by the respective [Distributors] and other
Publishers, given directly to Levy
(2) from said Publishers and the [Distributors],
given indirectly to Levy through payments to Levy
Trucking Company, Levy Book Company or other Levy
(3) from brokers or other third persons as brokerage
fees or similar payments;
in violation of paragraph 2(c) of the Robinson-Patman Act.
(Am. Compl. ¶ 74(r).) Subparagraph (3) is conclusory, devoid of
facts, and fails to state a claim under section 2(c) of the
Robinson-Patman Act. Subparagraphs (1) and (2) are insufficient to allege
sham brokerage fees. "The fact that a direct payment or indirect discount
passes from one party to another party does not compel the conclusion that
the payment or discount violates Section 2(c)." Intimate Bookshop, 88 F.
Supp. 2d at 140. Yet subparagraphs (1) and (2) allege nothing more. "In
order to make out a prima facie Section 2(c) claim, a plaintiff must
specifically plead that the payment or discount is in lieu of a brokerage
[fee], which the Federal Trade Commission and courts have defined as a
reduced or eliminated brokerage." Id. Plaintiffs do not make this
required pleading. The only mention of brokerage is the conclusory
statement in subparagraph (3). It is not possible to conclude from the
Amended Complaint that the payments described were not genuine brokerage
fees "for services rendered in connection with the sale or purchase of
goods," as the Robinson-Patman Act permits. 15 U.S.C. § 13(c).
As for commercial bribery, assuming arguendo that it is prohibited
under section 2(c), plaintiffs have failed to state a claim. To the
extent that section 2(c) prohibits bribery, it prohibits "cases of
commercial bribery involving a breach of a fiduciary duty by the buyer's
agent." Grinnell, 67 F. Supp. 2d at 131. For example, the plaintiff in
Grinnell alleged that the defendants bribed plaintiff's purchasing
manager to buy lithographic services from defendants rather than from
defendants' less expensive competitors. Id. at 128. Plaintiffs here
allege nothing of the sort; they allege only payments to Levy or its
affiliates. The allegation that a discount or payment passed from one
business to another does not implicate bribery involving a breach of
fiduciary duty. Thus, even if it is possible to state a claim for
commercial bribery under section 2(c), plaintiffs have not done so.
Accordingly, plaintiffs' causes of action under section 2(c) are
Plaintiffs allege that Levy violated section 2(f) by knowingly
receiving discriminatory prices in violation of other sections of the
Robinson-Patman Act. Section 2(f) provides that, "[i]t shall be unlawful
for any person engaged in commerce, in the course of such commerce,
knowingly to induce or receive a discrimination in price which is
prohibited by this section." 15 U.S.C. § 13(f). Because the Court has
already dismissed plaintiffs' other causes of action under the
Robinson-Patman Act, there remains ...